Medical Expenses

If you itemize your deductions on Form 1040, Schedule A, you may be able to deduct medical expenses. Here are some things to keep in mind:

• You may deduct the amount of medical expenses that exceed 7.5% of your adjusted gross income. Starting in 2013 as part of the new health care law, the threshold will increase to 10%.
• You can only deduct medical expenses you actually paid during the year, minus any reimbursements.
• You can deduct expenses you pay for yourself, spouse, and dependents. If you’re divorced or separated, each parent can deduct the medical expenses he or she actually pays for a child, even if the child is not claimed as a dependent.
• You can deduct transportation and traveling costs to a health care facility. Transportation costs include mileage, tolls, and parking fees.
• Lodging is deductible if the trip is primarily for and essential to medical care. Lodging expenses for a person accompanying the individual seeking medical care is also deductible, but meals are not deductible. The deduction is limited to $50 per night per individual.
• Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if you pay qualified medical expenses with the proceeds.
• Medical expenses are those that are for the prevention or alleviation of a physical or mental defect or illness. This includes payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure of the body. The following types do qualify:
o You can deduct the costs of health insurance, dental insurance, long-term care, and long-term care insurance.
o Medicines prescribed by a medical professional. Insulin does not need a prescription, but is deductible.
o Costs for medical devices, equipment, and supplies, such as eyeglasses and wheelchairs, as prescribed by a medical professional.
o Co-pays for doctors, dental visits, and eye exams qualify as medical expenses.
o Weight-loss programs are only deductible if it is prescribed by a physician to treat a specific disease. You can include the cost of special food only if the food does not satisfy normal nutritional needs, the food alleviates or treats an illness, and a physician confirmed the need for the food.
The following types do not qualify:
o Over the counter medicines and treatments, nutritional supplements, vitamins, and first aid supplies do not qualify unless specifically prescribed by a medical professional. Medications obtained from another country cannot be deducted as medical expenses.
o Medical marijuana or other controlled substances are not deductible as medical expenses, even if your state allows it.
o Gym memberships, teeth whitening, and cosmetic surgery that is only cosmetic in nature is not deductible.

American Jobs Act

By Bethany Pusiful, CPA

When President Obama spoke on September 9, he outlined a plan that he hopes will help put Americans back to work. Following is a brief outline of his plan.

- Tax cuts to help America’s small business hire and grow
o Cutting the payroll tax in half to 3.1% for 98% of businesses
o A payroll tax holiday for added workers or increased wages
o Reforms and regulatory reductions to help entrepreneurs
and small businesses access capital
o Extending the 100% immediate deduction on investments in new
plant and equipment

- Putting workers back on the job while rebuilding and modernizing
America
o Tax credits for hiring unemployed veterans ranging from
$5,600 to $9,600
o Preventing layoffs of up to 280,000 teachers while keeping
cops and firefighters on the job
o Modernizing at least 35,000 public schools across the country
o Modernizing our roads, rails, airports, and waterways while
putting hundreds of thousands of workers back on the job
o Putting people to work rehabilitating homes, businesses, and
communities, leveraging private capital and scaling land
banks and other public-private collaborations
o Expanding access to high-speed wireless

- Pathways back to work for Americans looking for jobs
o Reforming the unemployment insurance program including
extending unemployment insurance, preventing 6 million
people from losing their benefits
o A $4,000 tax credit for hiring long-term unemployed workers
o Expanding job opportunities for low-income youth and adults

- Tax relief for every American worker and family
o Expanding the payroll tax cuts passed last year to cut
workers’ payroll taxes in half in 2012, providing $1,500 in
tax cuts to the typical American family, without negatively
impacting Social Security
o Allowing more Americans to refinance their mortgages at
today’s historically low interest rates

Outsourcing Payroll

If you find yourself too busy to devote the attention needed to all of your business operations, your clients, and your employees, outsourcing payroll can be a cost and time effective strategy.

Some of the benefits to outsourcing payroll include:

• Reduce IRS penalties – if you find yourself having to pay late payment penalties and interest to the IRS, outsourcing the duty will ensure that deposits and reports are made on time.

• Reduce costs – outsourcing your payroll functions can actually save you money over hiring a temporary person, doing it yourself, or adding another staff person.

• Direct deposit – you may be able to offer direct deposit to your employees, saving them the time and hassle of having to go to the bank.

• Expert knowledge – you will be able to have an expert in the field of payroll stay on top of the ever changing regulations, forms, and withholding rates.

• Payroll staff – if you have a bookkeeper or someone else do you payroll, if they are out of the office you won’t be left in a lurch trying to figure out how to pay payroll that week.

• More time – you will have more time to devote to other business or personal matters.

If you are unsure of whether or not you want to outsource payroll, consider the following:

• How much free time do you have? Payroll can be time consuming. If you weren’t doing payroll, what would you be doing – getting more business, relaxing, spending time with family, working on employee relations, etc? Does the time you spend on payroll affect the efficiency of your operations?

• Are you missing payroll deposit deadlines or filing payroll reports late? Late deposit penalties can be as high as 10 percent.

• How confident are you that you are able to avoid mistakes? If you make errors, those mistakes can be held against you, and penalties can be assessed. Not only can mistakes cause you money, it can anger employees, take time to correct, and in some cases bring about more government scrutiny if the mistake is significant.

The decision to outsource payroll is one that should not be taken lightly. Even if you do decide to outsource your payroll functions, you are still ultimately responsible for your federal tax liabilities and payroll reports. You can outsource these functions, but if the payroll service fails to make the tax payments, the IRS will hold you as the employer responsible for taxes, penalties, and interest. For more information please contact Bethany.pursifull@bellandcompany.net.